On a roll to tax cuts

From a fiscal point of view, the Federal Government could hardly have scripted a better run-up to the election due in a year's time. If the 2002-03 budget outcome, announced yesterday, carries through to this year's, government coffers will be overflowing when the Treasurer, Peter Costello, brings down his budget next May. He can embark on a spending spree big enough to meet much of the public clamour for enhanced government services. Or, more likely, he can give it back as tax cuts.

The Government is betting that Australians will vote with their hip pocket nerve rather than trust it to repair the shortcomings voters identify in education, health, family services and public infrastructure. It knows many Australians will appreciate the opportunity to decide their spending priorities more directly. And it believes the economy will be stronger for the boost to consumer spending from money in the pay packet rather than the credit card.

The $7.5 billion budget surplus announced yesterday by Mr Costello was nearly double that forecast in his May budget. Company taxes, from the strongest corporate profits in years, raised $2 billion more than expected and expenditure was down by about $1 billion, pointedly in areas such as unemployment benefits, reflecting the economy's underlying good health. The surplus cut budget net debt by $8.4 billion to 3.9 per cent of GDP, its lowest level in 20 years and less than a third of the amount owed six years ago.

Mr Costello yesterday was careful with the usual caveats about the Government meeting expenses, keeping debt low and the Senate not compromising revenue and savings. And if he intends tax cuts, they will not be a surprise, as they were in a modest way, in the last budget. Stung by criticism that they lead the highest taxing government in Australian history, he and the Prime Minister, John Howard, have gone out of their way since to promise that money left over will go in tax cuts, all other things being equal.

With confirmation that the Government is financially better off than even it expected, tax relief is firmly set in voters' minds. And they expect more than they got last time with the derided "sandwich and milkshake" tax cuts. Advocates of greater government spending are inclined to scoff at tax cuts as electoral bribes designed to appeal to individual greed. But this is an oversimplification. Of course taxes pay for services for the common good, but there is compelling evidence, too, that individuals consume services more rationally if confronted with spending choice.

Several surveys indicate most Australians are willing to forgo tax cuts for better government services. This sentiment cannot be dismissed out of hand, but surveys can overstate such altruism.

In raising expectations of lower tax, it might be thought the Government has made a rod for its back. Not so. Provided services are adequate, and government extracts the greatest bang for its spending buck, tax cuts are economically productive and politically sensible. As of yesterday, we can also see how much they are within reach.

When soldiers draw the line

The Israeli Prime Minister, Ariel Sharon, is furious. Last week's very public act of insubordination by a group of senior Israeli Air Force officers, he says, is "like a knife in the back" of the nation's defence forces and plays into the hands of the Palestinian terrorists they are fighting. Much of the Israeli public agrees. The 27 pilots, active and reserve officers, have since been swiftly stood down over their refusal to carry out bombing raids inside the densely populated Palestinian territories.

Yet, the deep concerns the pilots have raised over civilian deaths in air strikes cannot easily be brushed aside. Pilots are the Israeli Defence Forces' elite in a nation where military service is considered a moral duty. Any decision to challenge their commanders publicly would not have been taken lightly.

Any enemy which intentionally blurs the lines between combatants and civilians presents a conventional military force with a moral, legal and operational dilemma. What, if any, level of civilian casualties is acceptable in routing out terrorists or guerilla fighters from the communities in which they hide? The answer is so subjective, and emotive, that no satisfactory strategic formula can ever be devised. It is always a matter of fine degrees, of where to draw the line.

Palestinians terrorists are a stateless, irregular force. The overwhelming technical superiority of the Israeli military is pitted against an obscured or invisible enemy which mostly wages its war through suicide bombings on Israeli civilian targets. In the three years of fighting since the latest Palestinian intifada or uprising was declared almost 3000 people have been killed. Of the 2200 Palestinians dead, at least 400 have been children or teenagers.

Mr Sharon's military strategy includes a campaign of "targeted assassinations" in densely populated Palestinian enclaves. In July Israeli warplanes dropped a one-tonne bomb on the home of an extremist leader in Gaza, killing the target, his wife and nine children nearby. Such assassinations are illegal under international law and this incident in particular provoked the pilots to declare that the moral and legal line had been crossed.

The reality gap between the Israeli public's support for the use of lethal force and its failure to provide the safety and security they crave means an alternative political path must eventually be found. The pilots' dissent would be more usefully channelled into a frank and open debate over the inherent inadequacy of a military response to an old and complex territorial dispute.